Cons Related to Credit Counseling
A good consumer credit counseling agency may help you create a repayment program with your creditors and educate you on better money management strategies to avoid debt in the foreseeable future. But some credit advice services exploit people who tend to be financially vulnerable, so proceed cautiously.
The Federal Trade Commission Act forbids “unfair or deceptive acts or practices” of fixing credit, debt negotiation or counseling agencies. Some states have laws that make it illegal for credit service organizations to say to be able to improve credit scoring.
And in some states, consumer credit counseling services must register with the state Attorney General’s office and obtain a surety bond to work.
Voluntary Certification and Accreditation
The National Foundation for Credit Counseling (NFCC) is an independent not-for-profit organization that sets voluntary benchmarks for consumer credit counseling agencies. The NFCC Council on Accreditation (COA) accredits over 4,000 consumer credit counseling programs that meet NFCC standards.
To be accredited by the NFCC, a credit guidance agency must be acknowledged as non-profit by the IRS and have the proper local business licenses. To earn NFCC certification, a consumer credit counseling program should also use adequate constraints to defend consumers, including:
- Auditing operating and trust accounts every year
- Offering consumer education programs
- Providing detailed reviews of consumers’ income and debts, and an assessment of how each consumer got into financial trouble, with a written action plan for reducing debt
- Disbursing funds to creditors at least twice a month, or sooner in emergencies
- Giving clients a financial statement at least once every three months
The Association of Independent Consumer Credit Counseling Agencies (AICCCA) is yet another national organization with similar standards.
You will want to think twice before signing up with a credit guidance agency that doesn’t participate in either of these voluntary organizations.
Warning Signs
What should tip you off that you may be dealing with a less-than-reputable program?
Watch out for illegal fees, sometimes disguised as contributions. In the event the setup fees or monthly charges are extremely high, they can get rid of any gain you might have made against reduced finance charges, and you’d bemore well off negotiating directly with your creditors.
Another danger signal is usually outrageous statements to instantly repair your credit ranking. Credit rebuilding is a gradual process, and it is illegal to attempt to improve your credit rating by constructing a fresh, false identity.
You must also avoid advance fee loan scams, where you’re asked to fork over money to acquire a promised loan. Underneath the FTC’s Telemarketing Sales Rule, no person can legitimately ask that you pay until you actually receive a loan or credit. So be skeptical of any consolidation loan, get every detail written, and do not give your card, banking account or Social Security information on the telephone or online.
Educate Yourself
The obvious way to protect yourself against unscrupulous credit counselors is to:
- Check out the program’s reputation with your state Attorney General and local Better Business Bureau, and find out how long they’ve been in business
- Confirm with your creditors ahead of time that they will work with that particular company
- Understand exactly what services are offered, and whether those services address all of your debts
- Get the specifics of any monthly fees, and find out whether you’ll still be obligated to pay those fees whether or not you continue to participate in the program
- Get all promises in writing
- Read your written agreement carefully
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